California Rejects Even Modest Pension Reform

August 27, 2010

Unfunded public pension liabilities, which a Pew Center on the States report calculates are now as high as $1 trillion nationwide, threaten to bankrupt states that fail to address this ticking fiscal time bomb. But in California, which has an unimaginable $500 billion public pension problem and became the object of national ridicule for outrageous pension abuses in City of Bell, state lawmakers still couldn't bring themselves to pass legislation preventing highly paid government employees from using unused vacation and sick days accumulated during their last year on the job to pad their life-long pensions, says the Washington Examiner.

The watered down legislation allows public employee unions to negotiate what should be counted towards pension benefits. "We should be taking away the candy, not adding more," Marcia Fritz of the California Foundation for Fiscal Responsibility complained to the Los Angeles Times.

Utah doesn't have that problem anymore, says the Examiner:

In March, the state legislature became the first in the nation to pass a major overhaul of the state's defined benefit pension system after it lost 30 percent of its assets ($4 billion) in the stock market.

All current employees will continue in the present system, but all new workers hired after July 1, 2011 can choose to enroll in either a 401(k) or a hybrid pension system that caps state contributions at 10 percent of employees' salaries -- no matter what the stock market does.

Utah state Senator Dan Liljenquist, who sponsored the legislation, said it was the only way to honor current pension commitments and also keep unfunded pension liabilities from bankrupting his state.

Other states have tried increasing retirement age, scaling back retiree benefits, freezing cost of living increases and requiring employees to start contributing to their pension plans, but hybrid plans like Utah's are increasingly viewed as the best way to keep government promises to current employees while scaling them back to sustainable levels for future workers, says the Examiner.

"We've completely eliminated the pension-related bankruptcy risk. This is exactly what California needs to do," Liljenquist told the Examiner, adding that all the public unions in Utah were initially opposed to the idea. "But they eventually realized that we preserved benefits for current employees, and if we go bankrupt, all pensioners will be out of luck."